Excellence in Entrepreneurship Class

1
Excellence in Entrepreneurship Class Bruce
Barringer
Developing Successful Business Ideas
Session 1
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The Entrepreneurial Process(1 of 2)
Step 1
Step 2
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The Entrepreneurial Process(2 of 2)
Step 3
Step 4
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Developing Successful Business Ideas
Recognizing Opportunities and Generating Ideas
Step 1
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What is An Opportunity?(1 of 2)

• Opportunity Defined
• An opportunity is a favorable set of
  circumstances that creates the need for a new
  product, service or business idea.
• Most entrepreneurial firms are started in one of
  two ways
• Some firms are internally stimulated. An
  entrepreneur decides to start a firm, searches
  for and recognizes an opportunity, then starts a
  business.
• Other firms are externally stimulated. An
  entrepreneur recognizes a problem or an
  opportunity gap and creates a business to fill it.

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What is an Opportunity?(2 of 2)
An opportunity has four essential qualities

• Attractive
• Durable
• Timely
• Anchored in a product, service,
• or business that adds value for
• its buyer or end user

buyandhold.com an opportunity
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Difference Between An Idea and An Opportunity

• Idea
• An idea is a thought, impression, or notion. It
  may or may not meet the criteria of an
  opportunity.
• Difference Between an Idea and An Opportunity
• Many businesses fail, not because the
  entrepreneurs that started the businesses didnt
  work hardthey fail because there was no real
  opportunity to begin with
• Before getting excited about a business idea, it
  is crucial to understand whether the idea fills a
  need and meets the criteria for an opportunity.

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Window of Opportunity

• Window of Opportunity
• The term window of opportunity is a metaphor
  describing the time period in which a firm can
  realistically enter a new market.
• Once the market for a new product is established,
  its window of opportunity opens, and new entrants
  flow in.
• At some point, the market matures, and the window
  of opportunity (for new entrants) closes.

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How Are Opportunities Identified?
First Approach Observing Trends
Environmental Trends Suggesting Business, Product
and Service Opportunity Gaps
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How Are Opportunities Identified?
Second Approach Solving a Problem
Sometimes identifying opportunities
simply involves noticing a problem and finding a
way to solve it
These problems can be pinpointed through
observing trends and through more simple means,
such as intuition, serendipity, or chance
Some business ideas are clearly initiated to
solve a problem
For example, Symantec Corp. created Norton
antivirus software to guard computers against
viruses
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Developing Successful Business Ideas
Feasibility Analysis
Step 2
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What Is Feasibility Analysis?

• Feasibility Analysis
• Feasibility analysis is the process of
  determining whether a business idea is viable.
• It is the preliminary evaluation of a business
  idea, conducted for the purpose of determining
  whether the idea is worth pursuing.
• Feasibility analysis takes the guesswork (to a
  certain degree) out of a business launch, and
  provides an entrepreneur a more secure notion
  that a business idea is feasible or viable.

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Feasibility Analysis
Role of feasibility analysis in developing
successful business ideas
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Preparing a Concept Statement(1 of 3)

• Concept Statement
• Before a company undertakes a feasibility
  analysis, a concept statement should be
  developed.
• A concept statement is a one page description of
  a business, that is distributed by a startup
  entrepreneur to people who are asked to provide
  feedback on the potential of the business idea.
• The feedback will hopefully provide the
  entrepreneur (1) a sense of the viability of the
  business idea (2) suggestions for how the idea
  can be strengthened or tweaked before
  proceeding further.

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Preparing a Concept Statement(2 of 3)

• Information to Include
• A description of the product or service being
  offered
• The intended target market
• The benefits of the product or service
• A description of how the product will be
  positioned relative to similar ones in the market
• A description of how the product or service will
  be sold and distributed
• Information about the founder or founders of the
  firm

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Preparing a Concept Statement(3 of 3)
New Venture Fitness Drinks Concept Statement
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Four Forms of Feasibility Analysis
Product/Service Feasibility Analysis
Industry/Market Feasibility Analysis
Organizational Feasibility Analysis
Financial Feasibility Analysis
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Product/Service Feasibility(1 of 7)

• Product/Service Feasibility Analysis
• Is an assessment of the overall appeal of the
  product or service being proposed.
• The idea is that before a prospective firm rushes
  a product or service into development, it should
  be confident that the product or service is what
  its prospective customers want.
• The two components of a product/service
  feasibility analysis are
• Concept testing
• Usability testing

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Product/Service Feasibility(2 of 7)

• Concept Testing
• A concept test involves showing a representation
  of the product or service to prospective users to
  gauge customer interest, desirability, and
  purchase intent.
• A concept test is different from a concept
  statement (discussed earlier). A concept test is
  limited to testing the feasibility of a specific
  product or service idea. A concept statement is
  a preliminary evaluation of an entire business
  idea.

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Product/Service Feasibility(3 of 7)
Three purposes of conducting a concept test
Purpose
How it is accomplished
Validate the underlying premises of a product or
service idea
This can be accomplished via phone interviews,
personal interviews, and focus groups and simply
by watching people perform relevant tasks.
A firm may show a product idea to a prospective
customer, get feedback, and tweak the idea.
Then, in an iterative manner, theyll show the
idea to more potential customers, get feedback
and tweak the idea some more, and so on.
Help develop an idea
Some type of buying intention question appears in
almost every concept test, usually in the form of
a survey questionnaire.
Estimate the potential market share the product
or service might command
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Product/Service Feasibility(4 of 7)

• Usability Testing
• Is the method by which users of a product are
  asked to perform certain tasks in order to
  measure the products ease-of-use and the users
  perception of the experience.
• Usability tests are sometimes called user tests,
  beta tests, or field trials, depending on the
  circumstances involved.
• While it is temping to rush a new product or
  service to market, conducting a usability test is
  a good investment of an entrepreneurs or firms
  resources.
• Many products that consumers find frustrating to
  work with have been brought to market too
  quickly.

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Product/Service Feasibility(5 of 7)
Forms of usability testing (this is not an
exhaustive list)
Form of usability test
Explanation
Some entrepreneurs, with limited budgets, develop
a fairly basic prototype and ask friends and
colleagues to use the product, then complete an
evaluation form or give feedback.
Basic prototype
Better funded companies have more elaborate
usability tests. For example, in Intuits
usability-testing lab participants are asked to
work with software programs that are being
developed, while loggers record usability
problems.
Elaborate usability test
There are a number of hybrid tests, that
provide a entrepreneur a sense of a potential
usability problem with a product or service. An
example is Intuits follow-me-home testing
methodology.
Hybrid tests
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Product/Service Feasibility(6 of 7)
Benefits of Conducting a Product/Service
Feasibility Analysis (continued on next slide)
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Product/Service Feasibility(7 of 7)
Benefits of Conducting a Product/Service
Feasibility Analysis
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Industry/Market Feasibility Analysis(1 of 6)

• Industry/Market Feasibility Analysis
• Is an assessment of the overall appeal of the
  market for the product or service being proposed.
• For industry/market feasibility analysis, there
  are three primary issues that a proposed business
  should consider
• Industry attractiveness, market timeliness, and
  the identification of a niche market.
• Industry Attractiveness
• A primary determinant of a new ventures
  feasibility is the attractiveness of the industry
  it chooses.

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Industry/Market Feasibility Analysis(2 of 6)
Characteristics of attractive industries for new
ventures

• Are large and growing (with growth being more
  important than size)
• Are important to the customer
• Are fairly young rather than older and more
  mature
• Have high rather than low operating margins
• Are not crowded

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Industry/Market Feasibility Analysis(3 of 6)

• Industry Attractiveness
• Although the criteria shown on the proceeding
  slide is an ideal list, the extent to which a new
  businesss proposed industrys growth
  possibilities satisfy these criteria should be
  taken seriously.
• In addition to evaluating an industrys growth
  potential, a new venture will want to know more
  about the industry it plans to enter.
• This can be accomplished through both primary and
  secondary research, as explained in the next
  slide.

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Industry/Market Feasibility Analysis(4 of 6)
Role of Primary and Secondary Research in
Investigating Industry Attractiveness
Type of Research
How it is conducted
This is research that is original and is
collected by the entrepreneur. In assessing the
attractiveness of a new market, this typically
involves an entrepreneur talking to potential
customers and key industry participants.
Primary research
This is research that probes data that are
already collected. Examples of where this data
might come from are industry-related
publications, government statistics, competitors
Web sites, and industry reports from research
firms like Forrester Research.
Secondary research
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Industry/Market Feasibility Analysis(5 of 6)
Market Timeliness Considerations
Nature of product or service introduction
Major Considerations

• Is the window of opportunity open or closed?
• Is now a good time for a new market entrant
  (i.e.,
• are customers buying, are industry incumbents
• making money?)

Improvement on something already available in the
marketplace

• Should we try to capture a first-mover advantage?

Breakthrough new product or service, which should
establish a new market segment
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Industry/Market Feasibility Analysis(6 of 6)

• Identification of a Niche Market
• A niche market is a place within a larger market
  segment that represents a narrower group of
  customers with similar interests.
• For a new firm, selling to a niche market makes
  sense for at least two reasons.
• It allows a firm to establish itself within an
  industry without competing against major
  competitors head on.
• A niche strategy allows a firm to focus on
  serving a specialized market very well instead of
  trying to be everything to everybody in a broad
  market, which is nearly impossible for a new
  entrant.

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Organizational Feasibility Analysis(1 of 3)

• Organizational Feasibility
• Is concerned with determining whether the
  business itself has sufficient skills and
  resources to bring a particular product or
  service idea to market successfully.
• There are two primary issues to consider in this
  area
• Management prowess
• Resource sufficiency

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Organizational Feasibility Analysis(2 of 3)

• Management Prowess
• A firm should candidly evaluate the prowess, or
  ability, of its management team to satisfy itself
  that management has the requisite passion and
  expertise to launch the venture.
• Two of the most important factors in this area
  are
• The passion that the solo entrepreneur or the
  founding team has for the business idea.
• The extent to which sole entrepreneur or the
  founding team understands the markets in which
  the firm will participate.
• Sole entrepreneurs or founding teams with
  established social and professional networks also
  have an advantage.

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Organizational Feasibility Analysis(3 of 3)

• Resource Sufficiency
• This topic pertains to an assessment of whether
  an entrepreneur has sufficient resources to
  launch the proposed venture.
• The focus here should be on nonfinancial
  resources in that financial feasibility is
  considered separately.
• To test resource sufficiency, a firm should list
  the 6 to 12 most critical nonfinancial resources
  that will be needed to move the business idea
  forward successfully.
• If critical resources are not available in
  certain areas, it may be impractical to proceed
  with the business idea.

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Financial Feasibility Analysis(1 of 5)

• Financial Feasibility
• For feasibility analysis, a quick financial
  assessment is usually sufficient.
• The most important issues to consider at this
  stage are
• Capital requirements
• Financial rate of return
• Overall attractiveness of the investment

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Financial Feasibility Analysis(2 of 5)

• Capital Requirements
• In the feasibility analysis stage, it is
  important that an entrepreneur have a sense of
  what the businesss initial capital requirements
  will be.
• The figure that is determined provides important
  information about the rate of return that can be
  anticipated from the business and about the type
  of financing or funding that will be needed.

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Financial Feasibility Analysis(3 of 5)

• Financial Rate of Return
• Although the estimate may be rough, an
  entrepreneur should have a sense of the rate of
  return that the proposed business will produce.
• This figure can be determined in part by looking
  at the rate of return of similar businesses, and
  then adjusting upward or downward depending on
  the unique characteristics of the proposed
  business.

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Financial Feasibility Analysis(4 of 5)

• Overall Attractiveness of the Investment
• A number of other financial factors are
  associated with promising business startups.
• In the feasibility analysis stage, the extent to
  which a business opportunity is positive relative
  to each factor is based on an estimate rather
  than actual performance.
• Table 3.5 on the next slide lists the factors
  that pertain to the overall attractiveness of the
  financial feasibility of the business idea.

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Financial Feasibility Analysis(5 of 5)
Financial Factors Associated With Promising
Business Opportunities These are factors an
entrepreneur would try to anticipate would or
wouldnt take place in a proposed venture
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Developing Successful Business Ideas
Industry and Competitor Analysis
Step 3
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What is Industry Analysis?(1 of 2)

• Industry
• An industry is a group of firms producing a
  similar product or service, such as airlines,
  fitness drinks, or electronic games.
• Industry Analysis
• Is business research that focuses on the
  potential of an industry.

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What is Industry Analysis Important?(2 of 2)

• Why is This Topic Important?
• Once it is determined that a new venture is
  feasible in regard to the industry and market in
  which it will compete, a more in-depth analysis
  is needed to learn the ins and outs of the
  industry the firm plans to enter.
• This analysis helps a firm determine if the niche
  markets it identified during feasibility analysis
  are accessible and which ones represent the best
  point of entry for a new firm.

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Three Key Questions
When studying an industry, an entrepreneur must
answer three questions before pursuing the idea
of starting a firm.
Is the industry accessiblein other words, is it
is realistic place for a new venture to enter?
Are there positions in the industry that will
avoid some of the negative attributes of the
industry as a whole?
Does the industry contain markets that are ripe
for innovation or are underserved?
Question 1
Question 3
Question 2
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The Five Competitive Forces That Determine
Industry Profitability(1 of 4)

• Explanation of the Five Forces Model
• The five competitive forces model is a framework
  for understanding the structure of an industry.
• The model is composed of the forces that
  determine industry profitability.
• The forcesthe threat of substitutes, the threat
  of new entrants, rivalry among existing firms,
  the bargaining power of suppliers, and the
  bargaining power of buyers, determine the average
  rate of return for the firms in an industry.

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The Five Competitive Forces That Determine
Industry Profitability(2 of 4)

• Explanation of the Five Forces Model (continued)
• Each of the five-forces impacts the average rate
  of return for the firms in an industry by
  applying pressure on industry profitability.
• Well managed firms try to position their firms in
  a way that avoids or diminishes these forcesin
  an attempt to beat the average rate of return of
  the industry.

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The Five Competitive Forces That Determine
Industry Profitability(3 of 4)

• Explanation of the Five Forces Model (continued)
• Each of the five-forces impacts the average rate
  of return for the firms in an industry by
  applying pressure on industry profitability.
• Well managed firms try to position their firms in
  a way that avoids or diminishes these forcesin
  an attempt to beat the average rate of return of
  the industry.

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The Five Competitive Forces That Determine
Industry Profitability(4 of 4)
Five-Forces Model
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The Value of the Five Forces Model(1 of 4)

• First Application of the Model
• The five forces model can be used to assess the
  attractiveness of an industry by determining the
  level of threat to industry profitability for
  each of the forces, as shown on the next slide.
• If a firm filled out the form shown on the next
  slide and several of the threats to industry
  profitability were high, the firm may want to
  reconsider entering the industry or think
  carefully about the position it would occupy.

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The Value of the Five Forced Model(2 of 4)
Determining the Attractiveness of an Industry
Using the Five Forces Model
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The Value of the Five Forces Model(3 of 4)

• Second Application of the Model
• The second way a new firm can apply the five
  forces model to help determine whether it should
  enter an industry is by using the model to answer
  several key questions.
• The questions are shown in Figure 4.2 on the next
  slide, and help a firm project the potential
  success of a new venture in a particular industry.

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The Value of the Five Forced Model(4 of 4)
Using the Five Forces Model to Pose Questions to
Determine the Potential Success of a New Venture
in a Particular Industry
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Competitor Analysis

• What is a Competitor Analysis?
• A competitor analysis is a detailed analysis of a
  firms competition.
• It helps a firm understand the positions of its
  major competitors and the opportunities that are
  available.
• A competitive analysis grid is a tool for
  organizing the information a firm collects about
  its competitors.

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Completing a Competitive Analysis Grid
Competitive Analysis Grid for Activision
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Developing Successful Business Ideas
Developing An Effective Business Model
Step 4
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What is a Business Model?

• Model
• A model is a plan or diagram thats used to make
  or describe something.
• Business Model
• A firms business model is its plan or diagram
  for how it competes, uses its resources,
  structures its relationships, interfaces with
  customers, and creates value to sustain itself on
  the basis of the profits it generates.
• The term business model is used to include all
  the activities that define how a firm competes in
  the marketplace.

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Dells Business Model(1 of 2)
It is important to understand that a firms
business model takes it beyond its own
boundaries. Almost all firms partner with others
to make their business models work. In Dells
case, it needs the cooperation of its suppliers,
shippers, customers and many others to make its
business model possible
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Dells Business Model(2 of 2)
Dells Approach to Selling PCs versus Traditional
Manufacturers
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Business Models

• Timing of Business Model Development
• The development of a firms business model
  follows the feasibility analysis stage of
  launching a new venture but comes before writing
  a business plan.
• If a firm has conducted a successful feasibility
  analysis and knows that it has a product or
  service with potential, the business model stage
  addresses how to surround it with a core
  strategy, a partnership network, a customer
  interface, distinctive resources, and an approach
  to creating value that represents a viable
  business.

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Importance of a Business Model
Having a clearly articulated business model is
important because it does the following

• Serves as an ongoing extension of feasibility
  analysis. A business
• model continually asks the question, Does this
  business make sense?
• Focuses attention on how all the elements of a
  business fit together and
• constitute a working whole
• Describes why the network of participants needed
  to make a business
• idea viable are willing to work together
• Articulates a companys core logic to all
  stakeholders, including the
• firms employees

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Components of a Business Model
Four Components of a Business Model
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Core Strategy(1 of 3)

• Core Strategy
• The first component of a business model is the
  core strategy, which describes how a firm
  competes relative to its competitors.
• Primary Elements of Core Strategy
• Business mission
• Product/market scope
• Basis for differentiation

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Core Strategy(2 of 3)
Primary Elements of Core Strategy
A firms mission, or mission statement, describes
why it exists and what its business model is
supposed to accomplish. For example, Southwest
Airlines Mission statement is as follows The
mission of Southwest Airlines is dedication to
the highest level of customer service delivered
with a sense of warmth, friendliness, individual
pride, and company spirit.
Business Mission
A companys product/market scope defines the
products and markets on which it will
concentrate. The choice of products has an
important impact on a firms business model.
Product/Market Scope
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Core Strategy(3 of 3)
Primary Elements of Core Strategy
It is important that a new venture differentiate
itself from its competitors in some way that is
important to its customers. If a new firms
products or services arent different from those
of its competitors, why should anyone try them?
Firms often differentiate them on the basis of a
cost leadership strategy or a differentiation
strategy.
Basis of Differentiation
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Strategic Resources(1 of 3)

• Strategic Resources
• A firm is not able to implement a strategy
  without resources, so the resources a firm has
  affects its business model substantially.
• For a new venture, its strategic resources may
  initially be limited to the competencies of its
  founders, the opportunity they have identified,
  and the unique way they plan to serve their
  market.
• The two most important strategic resources are
• A firms core competencies
• Strategic assets

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Strategic Resources(2 of 3)
Primary Elements of Strategic Resources
A core competency is a resource or capability
that serves as a source of a firms competitive
advantage over its rivals. Examples are Sonys
competence in miniaturization, Dells competence
in supply chain management, and 3Ms competence
in managing innovation.
Core Competencies
Strategic assets are anything rare and valuable
that a firm owns. They include plant and
equipment, location, brands, patents, customer
data, a highly qualified staff, and distinctive
partnerships.
Strategic Assets
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Strategic Resources(3 of 3)

• Importance of Strategic Resources
• New ventures ultimately try to combine their core
  competencies and strategic assets to create a
  sustainable competitive advantage.
• This factor is one that investors pay close
  attention when evaluating a business.
• A sustainable competitive advantage is achieved
  by implementing a value-creating strategy that is
  unique and not easy to imitate.
• This type of advantage is achievable when a firm
  has strategic resources and the ability to use
  them.

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Partnership Network(1 of 2)

• Partnership Network
• A firms partnership network is the third
  component of a business model. New ventures, in
  particular, typically do not have the resources
  to perform key roles.
• In most cases, a business does not want to do
  everything itself because the majority of tasks
  needed to build a product or deliver a service
  are not core to a companys competitive
  advantage.
• A firms partnership network includes
• Suppliers
• Other partners

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Partnership Network(2 of 2)
Primary Elements of Partnership Network
A supplier is a company that provides parts or
services to another company. Intel is Dells
suppler for computer chips, for example. Firms
are developing more collaborative relationships
with their suppliers, and finding ways to
motivate them to perform at higher levels.
Suppliers
Along with suppliers, firms partner with other
companies to make their business models work. An
entrepreneurs ability to launch a firm that
achieves a sustainable competitive advantage may
hinge as much on the skills of the partners that
are involved as the skills within the firm
itself. The most common types of partnerships
are shown on the next slide.
Other Key Relationships
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Partnership Network(3 of 3)
The Most Common Types of Business Partnerships
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Customer Interface(1 of 3)

• Customer Interface
• The way a firm interacts with its customer hinges
  on how it chooses to compete.
• For example, Amazon.com sells books over the
  Internet while Barnes Noble sells through its
  traditional bookstores and online.
• Dell sells strictly online while HP sells through
  retail stores.
• The three elements of a companys customer
  interface are
• Target customer
• Fulfillment and support
• Pricing model

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Customer Interface(2 of 3)
Primary Elements of Customer Interface
A firms target market is the limited group of
individuals or businesses that it goes after or
tries to appeal to. The target market a firm
selects affects everything it does, from the
strategic assets it acquires to the partnerships
it forges to its promotional campaigns.
Target Market
Fulfillment and support describes the way a
firms product or service goes to market or how
it reaches it customers. It also refers to the
channels a company uses and what level of
customer support it provides. All these issues
impact the shape and nature of a companys
business model.
Fulfillment and Support
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Customer Interface(3 of 3)
Primary Elements of Customer Interface
The third element of a companys customer
interface is its pricing structure, a topic that
will be discussed in more detail in Chapter 11.
Pricing models vary, depending on a firms target
market and its pricing philosophy.
Pricing Structure